Identifying Patterns
We are sure you will be able to apply the bearish flag pattern easily after understanding the following three basic steps.
First, look for flag that will be marked as the beginning of a down trend in both the down sharply or slowly.
Secondly, you must have a tolerance limit when the flag has been determined. It will be a consolidation period of falling prices. During this period, the price will probably turn up slowly. In this situation, traders are advised to wait until prices break through the lower positions of the previous trend.
Third, once prices move lower again, that's where you can find the last component required in trading with bearish flag pattern. Trading profit obtained from reversal after the price has reached the lowest trend. The price level should be determined in advance by measuring the distance pips since the decline. Then, the peak value is reduced the resistance line that has been predicted. For more details, you can see the picture below:
EUR/JPY price
The picture above is a bearish flag pattern on the daily chart of EUR/JPY. Formed from the flag pole, the trader can see the relationship began on June 21 at the 101.61 level until the 24th of July at 94.10 level. Formed from a series of points, it appears the difference of 751 pips since the decline.
From these images it appears that the price is in a consolidation phase. Once the price starts to rise gradually, you can see the formation of a bearish flag pattern. And by utilizing the pattern, you can generate a profit of 751 pips when the price dropped to a potential target is near the 91.00 level.
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